Info-tech

Shares concerns on how expectations have changed with companies focusing on generating enough cash flows to survive the next two-three years  

Nithin Kamath, Founder and CEO of Zerodha, on Tuesday shared his opinion on the sharp fall in the stock prices of technology companies across the globe. 

“The sharp fall in the stock prices of high-growth tech companies across the globe is getting crazy, feels like the dot-com boom,” Kamath wrote in a Twitter thread.

It is ridiculous how quickly the expectations changed from growth at all costs to generating free cash flows to survive the next 2 to 3 years since raising funds might be tougher. It is almost impossible for businesses to quickly adapt, especially the larger ones. 2/7

— Nithin Kamath (@Nithin0dha) May 10, 2022

Tech stocks across the globe have been facing the brunt of sell-off in equity markets with  tech-heavy Nasdaq Composite plummeting over 4 per cent on Monday. The Nifty IT index fell 1 per cent on Tuesday. 

According to Kamath, India has “weathered the storm” mostly because not many such companies are listed, while many private companies have raised “a lot of money” last year. 

Kamath further shared concerns on how expectations have changed with companies focusing on generating enough cash flows to survive the next two-three years with fund-raising getting more difficult. 

Globally, India still has a lot of interest given our demographics, population on mobile+internet, & expected GDP growth.
There is a lot of money waiting to enter Indian private markets, $25bil is what I am told. But FIIs pulling out money from public markets doesn’t add up. 5/7

— Nithin Kamath (@Nithin0dha) May 10, 2022

Employee morale

The Zerodha founder further opined that ESOPs given over the last three years will mostly be out of money and employee networth would have taken large haircuts, which was another major issue..

“This could affect the morale of many, which will make it even harder for those running the business,” he wrote. 

“While listed Indian high-growth tech stocks too have fallen quite a bit, they are very few and hence haven’t had a large impact on the rest of the markets,” he wrote, adding that Indian private markets “got lucky” with all the money that got diverted from China to India last year. 

“Globally, India still has a lot of interest given our demographics, population on mobile+internet, & expected GDP growth,” he wrote.

“There is a lot of money waiting to enter Indian private markets, $25bil is what I am told. But FIIs pulling out money from public markets doesn’t add up,” he added. 

Selling spree in Indian equities

Foreign Portfolio Investors (FPIs) pulled out over ₹20,000 crore from financial services and information technology (IT) sectors in April amid the selling spree in Indian equities for the seventh straight month.

As per the latest data, the IT sector witnessed an outflow of ₹8,579 crore.

Kamath said that hopefully there will be some correction in employee expectations in India owing to this. 

“But one hope I definitely have is that there is some correction in employee expectations in India, especially tech, product management, etc. “ he wrote.

To raise that much, founders need to oversell the growth prospects & target market size to investors. This leads to setting goals which aren’t achievable and the business not being resilient or sustainable or profitable to weather storms like what we are seeing now globally. 7/7

— Nithin Kamath (@Nithin0dha) May 10, 2022

Published on May 10, 2022